Not a pleasant situation; sell your house and leave a residual debt. What now? Can you get a new mortgage now for a new home? And how do you pay the residual debt? We have sorted out everything about a mortgage with residual debt.
What is a residual debt?
Is your home now under water, so is your mortgage debt higher than the value of the property? Then it is to be expected that if you sell the house now, you will have a residual debt. An option is not to sell the house yet, but in some cases it can not be prevented. For example because you have become unemployed or you are divorcing and can no longer bear the mortgage payments.
How can a residual debt arise?
There are various situations where a residual debt may arise:
- The value of your home has dropped over time
- You have taken out a higher mortgage than your home is worth
- You have linked investments to the mortgage and they have paid too little to repay the mortgage
- You have an interest- only mortgage , but you have not saved enough, so that you can not repay the mortgage at the end of the term.
What can I do if I have a residual debt?
If you expect that you are dealing with a residual debt, then it is wise to contact your current mortgage provider. Can you not pay the residual debt yourself with savings, for example? Then in many cases you may not sell the property without the mortgage provider’s permission. By talking to the bank you may be helped in a different way with a solution for the residual debt. Below we discuss a number of other options.
Loan for the residual debt
Do you take out a loan to repay the remaining debt? Loans concluded between 29 October 2012 and 31 December 2017 for this reason can benefit from a tax benefit. The interest on the loan is deductible for 15 years with the tax return. The loan must be repaid at least annuity . Note: after the 15 years, the interest is therefore no longer deductible from the income tax. This affects your expenses if you have not yet repaid the loan.
Repay residual debt with equity
Do you have savings, invested in shares or capital insurance? You may be able to use this to pay off the remaining debt. Your financial adviser can look at the possibilities together with you.
Take out a residual debt and a new mortgage
Do you want to move, because you have a nicer home in mind that fits better with your current family composition? It is sometimes also possible to include the residual debt in the new mortgage. If your income is enough for the new mortgage and the residual debt, then that is possible regardless of the rules surrounding the maximum mortgage . However, not all banks offer this option. An independent mortgage advisor can best see what your options are.
Donation by parents
Do your parents have equity? Perhaps your parents can help with paying the residual debt. They may, under certain conditions, grant you a certain amount that you can use for your own home or to repay the remaining debt. Or they can borrow your money so that you can pay off the remaining debt. With a loan it is wise to put all agreements down on paper, so you avoid annoying quarrels about the borrowed money.
Residual debt and NHG
Do you have a mortgage with National Mortgage Guarantee (NHG) and do you have to sell the property, leaving a residual debt? Under certain conditions it can be decided that the residual debt will be canceled. For example because you became unemployed or divorced. The NHG first of all looks at whether they can help in another way, so that you do not necessarily have to move. Together with your mortgage advisor, they then look at whether they can make the mortgage affordable again, so that you can stay in the house and thus prevent a sale with residual debt.
Do you not meet the conditions, for example because you want to move from a free choice? If you meet the conditions below, you can co-finance the residual debt in a new mortgage with NHG.
Conditions for residual debt financing NHG:
- Now you have an NHG mortgage and the new home you also finance with an NHG mortgage.
- If the residual debt arose before 1 January 2018 you may be entitled to mortgage interest relief. If the residual debt arises on or after 1 January 2018, you are not entitled to a mortgage interest deduction
- The costs for the new home including the residual debt are not higher than the NHG limit. Possibly the part of the new mortgage, including the residual debt that exceeds this cost limit, can be co-financed without NHG.
- The new mortgage meets the maximum mortgage requirements (loan-to-income)
- The mortgage for the new home can only be closed after the sale of the current home. After the sale you have 1 year to finance the residual debt in a loan for the next home.
- The remaining debt is repaid entirely annuity. After 15 years, the right to the mortgage interest deduction for the residual debt will lapse.
The bank ultimately decides whether you can co-finance the residual debt.
How can you prevent residual debt?
If you plan to sell the property within the next few years and you anticipate a residual debt, you can try to prevent this. That gives a lot of rest. You can see if you can pay off extra on the mortgage. Mind you, you can not do this indefinitely. So let us first inform you what you can pay extra free of charge per year.
Another solution is to convert your interest-only mortgage into an annuity or linear mortgage. These are forms that are repaid on a monthly basis, so that you know that you no longer have any debt due to repayments at the end of the term. In some cases it is possible to extend the term of the mortgage, in order to eventually pay off the entire debt. Of course it is always wise to first consult an independent mortgage advisor. This can look at the best solution together with you.